Translating Daily Reality

http://www.nytimes.com/2008/10/31/opinion/31krugman.html

The interesting crux of economics for me lays at the junction between theory and the daily behavior of people on an individual level. We find our own behavior and that of any given other person's to be very easy to judge - oh, she should do this, he should do that, and I'm going to go have a drink.

On an individual level, it can be easy (when we know someone well) to predict their behavior. There are always those elusive folks who remain a mystery, who march to the beat of a different drum.

When it comes to large, grander scale theories, we find that our collective behavior is motivated by so many directions simultaneously that it is impossible to make any concrete predictions at this time. Here we stand, a few days from what will turn out to be the most important election in our lifetimes.

The policies that will be implemented in the next presidency will shape the future of our world to come. Economic theory has reached a brink - we stand poised to leap forward off of a cliff, and we think that we can fly.

A part of me thinks that we can fly - into this new world where it can be collectively understood that economics is just a theory. It is just a figment of the imagination, the agreement that this specific digit engraved upon this piece of paper has meaning.

We use money as an intermediate of exchange, a way to receive a nationally-accepted standard in exchange for our goods or services. The vehicles that we use to create money are quite more complicated - bonds, options, securities, and what have you.

I believe that if the vast majority of people understood economics more clearly, they would see that we are actually capable of creating money out of thin air. Money doesn't grow on trees - it grows out of our minds.

Flying into this new world will happen when the policies that are created reflect the majority of this country's desire to take care of our fellow human beings. We can borrow all the money we want to bail out banks, but that doesn't actually feed people who are hungry. It doesn't clothe the cold, or shelter the homeless. It doesn't pay for medical treatment for someone who would otherwise die.

As hippie-dippy as it sounds, if programs were enacted to guarantee that no one would suffer from a lack of food, shelter, or medical care, there would be a lot less fear in this country.

The largest lesson of economics is that when a country begins to fear, its economy crashes. It's just like the coyote chasing the roadrunner off the cliff - the roadrunner has so much momentum that he can make it across to the other side.

So I have it wrong - we're not poised at a cliff, since we've been going fast and furious (as an economy) without much time to think how we've gotten up this high.

Right now as a country, we just looked down, and realized that we've been running on an economy built on thin air.